It Is Just Too Difficult

THERE is a growing concern amongst some polyolefin industry executives that, despite the economic problems first in China and now India, there is still a great deal of enthusiasm for adding new capacity, as we discuss in this ICIS Insight article.

“Now that China has weakened, everybody has switched their attention to countries such as Indonesia, Vietnam, Myanmar and the Philippines in order to try and justify their investments, but, essentially, I think nothing has changed in these countries,” said an industry source.

“They are much smaller markets than China, will remain so for the foreseeable future, and they face major long-term structural, economic, social and political challenges.”

Another concern is that as commodity grade polyolefins markets become harder going for higher-cost producers, thanks to the rise of shale gas, those producers are increasingly shifting up the value chain.

“Everyone starts out as a commodity seller first and then, if they don’t have a competitive feedstock position, or have some other motive to add value, they move to metallocenes, polyolefin-based elastomers or some other kind of speciality,” added the industry source.

“But the problem is that the global markets for these specialities are relatively small.”

Another dilemma appears to be that while what is defined as a “worldscale” cracker becomes ever-bigger, thanks to better engineering, engineers at the other end of the value chain – those involved in plastics processing – are constantly improving the ability to down gauge.

Innovation in down gauging is being drive by environmental and cost factors.

Bottles and packaging are becoming ever-thinner, thanks to the rise in metallocene-grade production. For instance, bottles can be made with around 20 grams of polymer compared with 35 grams earlier.

The shift from rigid to flexible packaging is also reducing plastics consumption. Demand for stand-up pouches is booming and replacing, for example, rigid milk cartoons.

Here, you blow a film into a bottle, rather than blow liquid resin into a mould, and this leads to lower energy and polymer consumption.

On average 15-20% less polymer is used in Smart Bottles compared with standard blow-moulding, we were told.

Smart Bottles are being used in North America, but a bigger potential could be in Asia, where cost is so much more important.

Smaller processing machinery can also be used to manufacture Smart Bottles. This is another advantage in Asia, where most converters are small and medium-sized enterprises and so have limited financing capabilities.

The fragile and uncertain nature of the global economy, and thus the need to further reduce costs, might lead to more innovation in reducing plastics consumption.

Building such variables into demand-growth forecasts seems to be a huge challenge for polyolefin producers.

At the same time, some sources said that companies were under pressure from investors not to stand still on capacity additions. This led to over-simplified and over-optimistic outlooks for growth, they feared.

And within some companies, it was difficult to challenge conventional wisdom because of the risk that asking too many awkward questions might damage career progression, they added.

“Nobody wants to rock the boat because if you do rock the boat, you have to come up with an alternative and that’s very difficult because it is so complicated,” said one of these sources.

“You also don’t want to end up as the only executive without a project to pursue.”